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The Greek election went as well as could be hoped for, all things considered. A coalition government will be formed in favor of austerity (though renegotiation of terms is on the table) — and remaining in the eurozone.

Yet the capital markets were anything but pleased. After a higher opening in Europe, exchanges over the Atlantic gave up their gains quickly. In morning trading, the major U.S. indices were in the red.

Even more discouraging is that this is exactly what we saw a week ago, too, when the news of a Spanish bank bailout failed to provide a steady lift to stocks despite optimism over the weekend.

But the previous Monday’s declines are instructive in explaining where investors are at right now: Spain is the real problem.

Before I get to the specifics, which may cross your eyes with all the numbers, here are the simple facts.

Spain’s government is borrowing at sky-high levels north of 7.1%. Those of us with good credit scores have credit cards that carry only a slightly higher rate.

Officials in Madrid need to borrow to pay Spain’s bills. It’s partly because of a spending hangover and partly because of an economic downturn, but the causes, frankly, are academic at this point.

If Spain can’t pay its bills, the government will essentially collapse. And since the government is a huge part of the economy, the economy will collapse, too.

Unlike Greece, Spain is a huge part of the eurozone, with roughly 12% of the region’s GDP. If Spain collapses, the eurozone collapses.

How Bad Are Spain’s Borrowing Troubles?

Ten-year bond yields have soared from a little over 6% just two weeks ago to over 7%. That’s shocking evidence of a lack of confidence in Spain’s government debt. Unfortunately, the nation is in an untenable position where it needs a lot of cash just to keep the lights on in its government, but it needs to offer debt at nosebleed levels due to a lack of lenders.

Specifically, Madrid needs to raise about 82.5 billion euros ($103 billion) by year-end, according to Reuters, with overspending local authorities needing another 15.7 billion euros ($19.6 billion). At yields of over 7% and rising, this situation is going to fall apart quickly unless something else happens.

With a recession in Spain now and predictions of the downturn lasting until the end of 2014 or beyond, that “something else” is going to have to be a direct bailout of Spain’s government, despite last week’s 100 billion euro ($125 billion) loan to banks that proved ineffective at holding down borrowing costs.

Consider that Spain is five or six times as big as Greece, which accounts for less than 3% of the eurozone economy and is relatively insubstantial. Spain’s 12% contribution to eurozone GDP makes it the region’s fourth-biggest economy after Germany, France and Italy.

The eurozone simply can’t survive without a solvent Spanish government and a secure Spain economy.

So, What’s Next?

Well it’s not unimportant that Greece gets its act together. Hopefully in the coming days, word of a functioning coalition government will come from Athens, and any debate over austerity and bailouts will at least be logical and measured.

But more important, we need to get to Spain. Borrowing costs are too high and the bank bailout that was indirectly intended to suppress bond yields has turned out to be an almost complete failure. That means lending from outside of Spanish banks is the only recourse, led by its partners in the EU.

The price tag for that bailout: 350 billion euros according to JPMorgan Chase () at the end of May. That’s roughly $440 billion in American greenbacks.

Worst of all, that huge bill may not be the end of things, either. Don’t forget that list of the eurozone’s four biggest players — France, Germany, Italyand Spain.

Oh yeah, Italy.

I could bore you with more statistics about the size of Italy’s debts and its economic woes, let’s just stop there. The fact of the matter is that we need to see meaningful progress in Greece and a direct bailout of Spain in the next few weeks before we can even consider talking about Italy.

Is it any wonder the markets are spooked and investors are running scared?